Abstract

Turkey had several unsuccessful stabilization efforts during 1980s and 1990s. Thanks to
policies that were put into practice after the 2001 crisis, which constitutes a turning point
for Turkish economy, fiscal discipline was restored, single digit inflation was reached, and
yet growth rate was doubled compared to the previous decade average. As a result
investment climate improved and the economy benefited from substantial amount of
foreign direct investment and other long-term capital inflows. However these
developments had some adverse side effects as well. Real appreciation of domestic
currency, deterioration of trade balance, and increasing private indebtedness generated
vulnerability for sudden stops. Beside, increasing global integration and very rapid shift in
the economic circumstances caused difficulties for traditional sectors. This paper analyzes
the Turkish experience after 2001 and identifies underlying dynamics of the restructuring
program, while denoting the costs of this transition. Turkish case provides evidence in
favor of disinflation programs combined with sound fiscal policies in spite of some adverse
effects in the short run.

Item Type:

MPRA Paper

Original Title:

Why did it work this time: a comparative analysis of transformation of Turkish economy after 2002

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